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As the FTSE 100 index contains many proven, mature companies and has recently hit an all-time high, it might not seem like the obvious place to hunt for high-yield shares. Currently, the index yields 2.9%.
However, with 100 companies in the index, that yield is just an average.
Some FTSE 100 shares pay no dividend at all: Polar Capital Technology Trust is an example, though as its share price has more than doubled in five years, shareholders might not mind that.
But, at the other end of the scale, there are high-yield shares in the FTSE 100 too. For example, Legal & General yields 8.2% and Phoenix Group yields 7.3%.
Both have a decent track record when it comes to annual dividend per share growth, though both paused it for a year during the pandemic.
Phoenix’s stated dividend policy is to keep growing its payout per share annually.
Looking to possible future dividend growth
As with all shares, however, what a company aims for and what it ends up delivering are not necessarily the same. The pandemic-era dividend demonstrated that.
No dividend is ever guaranteed and business performance can change, affecting a firm’s financial position as well as its spending priorities.
What about Phoenix? Its track record of generally increasing annual dividends is not a guarantee of what will happen in future, but it does demonstrate that the business model can generate sizeable free cash flows.
With around 12m customers and almost £300bn of assets under administration, Phoenix is a successful long-term retirement and savings business that has proven its capabilities.
One concern I have
If there is fairly smooth sailing ahead then I reckon Phoenix ought to be able to continue growing its dividend.
It is notable, though, that it is not the only high-yield FTSE 100 share in the financial services sector. Legal & General -–another retirement-focused business, is another. Asset manager M&G yields 6.6%.
Why is that?
One possible explanation in my view is that the market is factoring in the risk of a financial crisis at some point that pushes down market returns, hurting profits in the sector.
Take the case of Phoenix, for example.
It has a sizeable book of mortgage loans. Like any mortgage book, it involves assigning values to the properties concerned. Over time prices can move around, in the normal course of things. But if there is a big enough drop in the property market, that might require Phoenix to write down some (or all) of the values, taking a hit to profits in the process.
One to consider
Still, given the size of Phoenix’s diversified assets under management, there are bound to be risks. That in itself does not necessarily make it a bad business.
I see it as a rather dull but proven FTSE 100 firm in an area of the economy I reckon has long-term resilience. The size of its customer base alone points to the long-term potential here.
On that basis, I see it as a share for dividend-hungry investors to consider.
